Seeing through Labour’s tax transparency

One of Labour’s biggest weaknesses in the last three weeks of the campaign is tax – what they may or may not tax, especially regarding Capital Gains Tax.

Just after she became Labour leader Ardern spoke on Q+A (6 August):

JESSICA MUTCH: Capital gains tax – yes or no?

JACINDA ARDERN: I will not be campaigning on that this election.

JESSICA MUTCH: So no for a capital gains tax.

JACINDA ARDERN: But let me be transparent, though, here. I won’t be campaigning on it in the next seven weeks. I don’t think anyone would expect us to generate a policy like that in seven weeks. But I’m very clear on is that we are giving a mandate to a tax working group, as we’ve always been clear that we will, to look at the way we tax assets and wealth in New Zealand.

JESSICA MUTCH: So laying the groundwork for post-election?

JACINDA ARDERN: Yeah. That work will be done after the election. We do not tax assets and wealth the same way as other countries do. If we want to look at inequality, then it is necessary that we do that. But I will not be doing that in this seven weeks.

Ardern has pretty much stuck with this line, repeating ‘transparency’ often but always deferring to a future tax working group.

On one hand it is understandable that Ardern doesn’t want to be rushed into making significant policy decisions when she has been suddenly thrust into the heat of an election campaign. Theoretically decisions like this have to be run through the party policy development system.

But on the other hand this lack of certainty leaves Labour wide open to claims and confusion. Even her deputy was confused.

In a confused interview with the AM Show, Kelvin Davis appeared to know little of the detail of Labour’s tax stance and seemed to resile from that comment in the next breath.

Labour has faced tough criticism over its decision to establish a tax working group after the election, but not reveal to voters beforehand whether they intended to implement a capital gains tax or any other taxes.

This election, the party is refusing to rule in or out the possibility of capital gains tax at all.

It was the weak spot for Ardern in Thursday night’s first TVNZ leaders’ debate

Ardern said she was “absolutely clear” on the fact Labour would hold a working group, but refused to answer how far Labour was intending to go with its conclusions and suggested tax changes were more likely to occur in the first term.

“I’ve absolutely maintained our right, and my right as leader, to make sure when that tax working group reports back that I am able to act in Government in the best interests of New Zealand to try and address the housing crisis.”

Apparently not clear to Davis though.

Davis was asked during an earlier interview if Labour would put the outcomes of its tax working group to the country at the following election – Davis replied: “I can’t answer that”.

Pressed again he said: “my understanding is we’ll campaign on it in the next election”. Asked to firm up that answer, on whether Labour would slip it during their first term or take it back to voters to decide, Davis reverted.

“Look, I’m not going to answer that question,” he said.

“Because right now I don’t know, we’ve got to have the working group make their decisions and we’ll come to the country with whatever they produce.”

Ardern said she had not seen the interview, but Davis was “now very clear on our position”.

Like the voters, as clear as mud.

And Ardern is likely to get hammered on this over the next three weeks unless she finds some different lines. Ones that demonstrate transparency rather than just claiming to be transparent.

“I’ve been absolutely clear and have absolutely maintained my right as leader to make sure when that tax working group reports back that I am able to act in government in the best interests of New Zealand to try to address the housing crisis,” Ardern said.

Asked why she would not take the issue to another election for a mandate, Ardern cited National’s example when it came to power in 2008 and commissioned a tax review, ultimately leading to an increase in GST. “He [Bill English] saw fit to act on that as he saw fit in the best interests of New Zealand. The difference is that he wasn’t quite as open about intent before the election.”

Fair enough criticising National’s change of stance on increasing GST – but pointing out another party’s campaign deceit and subsequent u-turn is hardly a good way of giving voters confidence that Labour won’t do likewise, a similar somersault.

“I don’t want to be in a position where that working group comes back and there’s some ideas in there that could make a difference for that next generation to get into housing and to deal with some of the inequity in our tax system and to have to sit on that for another couple of years just doesn’t feel right to me.

“My view is though that certainly voters still get a way to feed back to us whether they think we are right or not. There will be another election probably 18 months within us acting on that review and if they don’t agree with what we’ve done, I’m sure they will tell us that.”

She denied it was a way of introducing a capital gains tax without having to say she was going to do so. “No, because I’ve been really clear with people. I expect to get scrutiny over that but I would rather be transparent around our direction of travel than say nothing at all.”

It was a government’s prerogative to act on the information a tax working group would give it. “But of course I’m setting out a few values, a few expectations going in; my expectation that it would never be on the family home and our major driver for this that it be around affordability issues, particularly in Auckland.”

Ardern is being clear in advance on the aspects of tax that suit her to be open about now, but refuses to be clear on others. This is cherry picking transparency.

On Three’s The AM show on Thursday, Robertson was drawn into his views on whether New Zealand needs a better capital gains tax regime.

“I personally support a better balance in our tax system and I’m going to wait till we see the expert working group. But I don’t believe at the moment that someone who goes to work every single day, pays tax on every dollar that they earn, is being treated fairly compared to someone who flips an investment property and makes a profit on that.”

Robertson keeps repeating that. He must know that selling an investment property for profit is already taxable as income.

Take Robertson’s comment that the main cause of inequality growth in New Zealand over the past few years has been to do with asset inequality. Well, I’m sorry Grant, but New Zealand’s housing stock is worth $1.03 trillion. It’s the major component of our net worth. And about two-thirds of that housing stock is owner-occupied (which is the non-political way of saying ‘family home’).

If we want to ensure fairer tax treatment across assets, wealth and income, then you cannot just rule out capital gains or imputed rents made/unpaid on two-thirds of a trillion dollars’ worth of residential property holdings from the debate.

Perhaps Ardern needs to show some leadership and come out and be clear about Labour’s intentions on tax, some real transparency.

Otherwise she risks getting hammered on this in the remaining three weeks of the campaign, when voters start to look past her charisma and consider what a Labour led government would actually mean for them.

Claiming transparency when it is clear she is fobbing us off may be what ends up defeating Ardern and Labour.

Ardern has had a huge challenge stepping up in the heat of a campaign. I think many voters will be evaluating whether they think it is too soon for her to be Prime Minister or not.

PDB

I disagree slightly – they DO have a plan at the very least to implement a CGT after the election and not campaign on it. The recordings of their senior ministers saying as much confirms this and it has been Labour party policy for the last few elections. In public they are essentially warning us that a CGT is going to be implemented and it will be a formality once the ‘working group’ looks at it, especially as Ardern has apparently confirmed that Grant Robertson will be leading this group.

Gezza

99.875% probability you correct, according to Charlie the Mallard Drake’s quick calculation.

And before you write him off as a birdbrain, just remember – he’s an accomplished stunt pilot who has even done a humming bird impression 2.5 feet in front of my face twice in the last week. So he’s a good calculator.

Gezza

Blazer

Jay3

From what Ardern has said so far it is certain a CGT will be introduced if Labour are elected, though saying this is a means of addressing high house prices is obvious rubbish, since it hasn’t worked in other countries such as Australia. It is likely to simply be a revenue gathering exercise with little downside as they will be just sticking it to the rich pricks. Of more concern is the variety of other taxes she refuses to rule out, such as inheritance and gift taxes. These can be justified under the mantra of addressing inequality and will play to the hard core ideological left among Labour supporters.

Corky

Jay3

Well, both Ardern and Robertson have said they will follow the recommendations of the tax working group they are going to set up. The Massey University tax expert and New Lynn Labour candidate Deborah Russell is an obvious appointee to this group and she is on record as favouring the introduction of both inheritance and gift taxes as a means reducing inequality.

Gezza

Absolutely. Too many hard-working parents who are not rentiers look upon their hard-won, well-deserved hovels as the biggest gift (beyond teaching them morality, responsibility, & how to recognise gibberers) & reward / helping hand up they can give their children, as their parents previous did for them. Although hoping they have mum & dad around for as many years as they can possibly get, their kids want this too.

David

It’s just a standard Orwellian trick. War is peace etc. As long as they simply drone on and on about being ‘transparent’ they hope few will notice they are completely opaque. Of course the follow on will be, when they introduce unpopular taxes, to claim they were ‘transparent’ about it and no one has a right to complain.

Gezza

I think “we are being completely transparent about this” has already reached the end of a very short shelf-life with the non-tribal undecideds who are starting to wonder what it might cost them over & above what they’re forking out now. Monday’s debate is going to be a gripper.

Blazer

PDB

Gezza

With her degree in comms (according to ma, must admit I haven’t even checked) Jacinda will know perfectly well she’ll need a solid, realistic, brainstorming session to come up with all the curve balls & tricky questions the opposition might throw at her, nut out some response lines, test run & refine them on a focus group – so that, come Monday, if they’ve done their stuff professionally – she’ll already know just parroting this line could be a vote-killer, now. Certainly a big target for Bill.

Gezza

Jacinda Ardern
1. Leader of the Labour Party & MP for Mt Albert
Spokesperson for Security and Intelligence, Arts, Culture and Heritage, and Children
Associate Spokesperson for Auckland Issues

Bio Blurb
Jacinda’s passion for social justice led her to the Labour Party at just 17 years old. She was elected to Parliament in 2008. Jacinda ran in the 2011 election as Labour’s candidate for Auckland Central, halving the incumbents’ majority down to approximately 700 votes.

Jacinda’s background experience ranges from policy development through to managing a large international non-governmental organisation (NGO). Before entering Parliament Jacinda worked for two and a half years for the Better Regulation Executive in the UK Cabinet Office. Her role as an Associate Director was to improve the way that local authorities, in particular, interfaced with business. She was also seconded to the Home Office to assist with a review of policing in England and Wales. In 2007 Jacinda was only the second woman to be elected President of the largest international political youth organisation in the world – IUSY, a role which saw her spending time in places ranging from Jordan, Israel and Algeria through to China.

Career Highlights
Named a World Economic Forum Young Global Leader in 2014
Past President of IUSY, an international political youth organisation with headquarters in ViennaBachelor of Communication Studies from Waikato University

David

David

IUSY = International Union of Socialist Youth, and I’ve just read the whole page on it and still don’t have a clue what this ‘large NGO’ Jacinda ran actually does apart from have a few meeting and a get together every couple of years. A social club for Socialists?

David

I did ask, and they told me they release press statements to say that if bad things happen, they are bad, and if good things happen, that is good. They also release press statements to call for more good things and fewer bad things.

Gezza

“I only had an hour’s notice of becoming leader.” (Leader’s debate)
” I don’t think anyone would expect us to generate a policy like that in seven weeks.”
So what have you and the rest of your party been doing for the last three years?

PDB

Again the obvious question is why didn’t they get the tax working group together before this election (therefore really being transparent on tax) considering they have had plenty of time to do so and considering they did that with the ‘future of work’ nonsense.

So this is verging on a lie….”But let me be transparent, though, here. I won’t be campaigning on it in the next seven weeks. I don’t think anyone would expect us to generate a policy like that in seven weeks.”

Labour have a CGT policy. Its in their manifesto’s for the 2011 and 2014 elections. Cunliffe didn’t understand it in 2014 and Key used it like a scalpel to slice Cunliffe up in at least one of the Leaders debates in 2014….

David Parker was the architect of the policy and he is still in the front ranks of the Party. He could tweak it and have it available in a week or so. And probably has it all fully formed ready to brief any “working group” if Labour take the treasury benches…

Put the policy on the table Labour – fess up. but that woulderode the soft centre vote you have targeted via Jacinda for the last 2 odd years since the splashy Womans Day etc magazine covers….

I expect National ads featuring CGT to be prominent over the next couple of weeks and for Jacinda to be called on it relentlessly because she knows exactly what the shape of the tax will be

Blazer

David

I am glad you brought that up Blazer. The productivity graph looks pretty good which is the point the journo misses but then they have to resort to using the Labour Cost Index instead of average weekly earnings to continue their spin, the LCI is the cost to a business of employing someone where as the average weekly earnings is what the worker actually gets in their pocket and I think the last quarter was a 3% rise against .2% inflation so Bill was right.
While Jacinda avoided putting numbers to anything she did say 430k to build a house and sure that might be right but the land is another 200k or 400k if you are in Auckland…no fact check there so more biased fake news.

PDB

Ardern said she would build 2 bedroom homes at ‘around’ $450k in Auckland to solve the housing crisis so those families we see in the news with 8 kids to 5 different fathers will need 4 of those at least…….

Blazer

PDB

Here’s the deceit in the report: “Labour productivity is well below leading OECD countries”.

We have ALWAYS been below the leading OECD countries in terms of labour productivity however we are higher than the average of OECD countries, trending upwards in roughly the same fashion as we have since at least the mid-1990s, with the current National govt lifting it almost twice as much as the last Labour govt.

Scoop: “On one of the key measures of productivity, GDP per hours worked, New Zealand’s productivity has lifted nearly 10 per cent since National came into office. That’s a faster rate than the UK, Canada, the US, the EU, the G7 and the average across the whole OECD.

“This increase has helped lift the average annual wage by $13,000 over that period, more than twice the rate of inflation.”

“The last time Labour was in office, it was the reverse. Our productivity growth was 5.5 per cent over eight years and much slower than all those other economies.”

Blazer

you are ignoring the last 5 Rockstar years.There are 2 recognised methods of measuring productivity…multi factor and capital deepening.The role of physical labour differs from sector to sector.Services have grown and improved but the tradeable sector has lagged in productivity progressing.All in all it makes a mockery of Nationals chest beating about being such great managers of the economy.They have relied on immigration and housing inflation and are never pro active.

David

I would like to know if the CGT is charged every year, if you can claim capital losses given the housing market, does it apply to shares, kiwisaver and what other assets. Will we have a V day and the tax applied retrospectively, will they do what other countries do and have a lower rate for CGT or will it be at the marginal tax rate. Will it apply to gifts, inheritance.
Given the housing market is flat would she switch to just a wealth tax or given that CGT never reins in house prices anywhere else in the world is she just hoping for no one asking a hard question.

PDB

Well David, that’s exactly the questions that Labour don’t want to answer. Being only a ‘positive campaign’ anything ‘negative’ is therefore banned, for instance;

*Fixing our rivers is announced (positive!), what the water tax value is not announced (negative).
*Train to the airport (positive!), what the road tax is to be paid not announced (negative).
*Being ‘completely transparent’ on tax (positive!), what new taxes are going to be brought in not announced (negative).

Revenue generated from Labour’s controversial water levy, touted as a way to clean up polluted waterways, could be used to fund local projects such as roading.

The revelation came during a fiery meet the candidates meeting at Temuka’s RSA, where members of the audience grilled Rangitata’s five electorate hopefuls on water quality and climate change.

Labour candidate Jo Luxton told the crowd that during a recent meeting with Ashburton councillors, the possibility of using the revenue generated for projects such as roading, rather than solely for environmental purposes, was raised.

Labour’s water spokesman, David Parker, was at that meeting, and said he would be open to discussing that possibility, Luxton said.”

Andrew

This argument particularly pisses me off. Yes they raised GST, but they also raised benefits and reduced income taxes to compensate at the same time. This broadened our tax base by taxing consumption more than taxing income.

It’s not like those muppets in Labour are going to reduce income tax because of the increased revenue generated from the CGT.

Blazer

Blazer if you can’t even understand the difference between abatement rate and secondary tax, it doesn’t say much for your credibility on any other issue.
With you complete lack of understanding of the tax system, there is a place for you on Labour’s front bench. I mean you can’t be any worse than those currently there.

Blazer

chrism56

The brightline test isn’t a CGT either. It is the arbitrary boundary between investment and trading. There is something similar for shares as well. The increase in price is taken as income and taxed. It was brought in because the old intention test was too subjective.http://taxpolicy.ird.govt.nz/sites/default/files/2015-ip-property-bright-line-test.pdf
So yet again, you show your lack of understanding by trying the bluster. But then you never let the truth stand in the way of you pushing the party line did you, Blazer.
I suppose we ought to give you credit for not resorting to abuse, which is your standard strategy when you are shown to be wrong.. And stop your use of ellipsis. That just marks you out as an illiterate who has learnt a new punctuation mark and uses it without understanding.

chrism56

The wording says the gain is income and taxed as such. They even had that as the first paragraph as the first chapter.
“As part of Budget 2015, the Government announced that it would introduce a “bright-line” test for the sale of residential property. The test will require income tax to be paid on any gains from the sale of residential property that is bought and sold within two years, with the exception of the main family home. ”
Then they follow it up with the third paragraph
“The intention test can be difficult to enforce due to its subjectivity. The bright-line test is intended to deal with the problem by supplementing the intention test with an unambiguous objective test. ”

You can disagree all you like Blazer, but you are still wrong. I know you haven’t read the IRD papers because they are beyond your ability to understand. They use multi-syllable words. .

Blazer

chrism56

That is only a lawyer’s opinion – and half the time they are wrong. Can you reference a court case supporting their view?
It is a income tax on the gains of property trading – the same as for share trading – and taxed as income. It is why there are rules on habitual sellers to catch them. That income distinction is why the tax working group didn’t see it as capital gains.
You might dismiss it as semantics, but the law is determined by the precise meaning of words – think “principles of Treaty of Waitangi”. It is why all Acts and Regulations have definitions of words in them.

chrism56

Here is a specific court case on capital gains that IRD losthttp://www.ird.govt.nz/technical-tax/case-notes/2014/cn-2014-08-29-other-revenues.html
The judge ruled:
“where Parliament intends to tax capital it must use clear language to do so (at [48]);
the general purpose of the ITA is to tax income. An amount of capital is not otherwise included in a person’s income unless Parliament has intended that to be so by a specific provision – New Zealand does not have a general all-purpose capital gains tax (at [54]);”
So where does the bright line test tax capital? Come on Blazer – find the clear language in the law – put up or shut up.

Blazer

@Chrism 56….first..save your overt hostility for someone who cares.Second this statement ‘ but the law is determined by the precise meaning of words –’is just plain wrong.I could be here all night presenting cases where ambiguity was argued,heard of the form /substance argument?As for dismissing a legal opinion,accountants themselves have differing interpretations of tax law.Mega firms like Arthur Andersens and KPMG…have been guilty of all manner of misdemeanours.I doubt any useful purpose is served by indulging you with your hobby horse.You have convinced me of…nothing.In your example…’The judge ruled:’…how can you have any confidence in his ruling?You know a judge is just a lawyer with an irish jig…don’t you?

Andrew

chrism56

Andrew
Why are you at all surprised? All Blazer does is do a Google search and attaches links – the scattergun approach. He doesn’t bother reading any of it – it might burst his bubble. His comments upthread on secondary tax show [deleted, that’s going too far and personal. PG]
The fact that case law has determined that a Capital Gains tax has to be called such in legislation is beyond his comprehension.

Andrew

Taxing capital gains as “income”, that is the difference. It’s not a “capital gains tax”, it’s treating capital gains as “income” so its taxed at the persons marginal tax rate, in most cases 33%, not the 15% that a CGT would be taxed at. Once again, you clearly don’t understand this stuff so stop trolling. You are making yourself look like an idiot.

Blazer

@Andrew…you said…’Nowhere in that linked page do they call it a “Capital Gains Tax”.
-‘Government has introduced the “Bright-line” test (“BLT”) for taxing capital gains made on the sale of residential property.’…the word income is not mentioned in that.You now join Chrism 56 in resorting to the you are an ‘idiot’ defence.Your statement was wrong…own it.

Andrew

“The Taxation (Bright-line Test for Residential Land) Act 2015 introduces a new “bright-line” test that will require income tax to be paid on any gains from residential property that is disposed of within two years of acquisition, subject to some exceptions.”

Income tax … not capital gains tax.

Andrew

Secondary tax doesn’t mean you actually pay any more tax in the end, you may end up paying more at the time but you get to claim it back at the end of the year if you have done. With the IRD’s new computer system this will be more close to real time so you wont pay any more at all.

Secondary tax is only there so people with multiple part time jobs don’t get a big tax bill at the end of every year. Please do keep up.

PDB

What does Labours argument ‘National raised GST without campaigning on it’ really mean?

*It was really bad National did that and we condemned them for it but two wrongs DO make a right and we’ll do it too if given the chance?
*We will definitely implement a CGT but like National did with GST we won’t announce it until after the election?
*If raising GST from 12.5% to 15% was ‘bad’ why is Labour not going to put it back to 12.5%?

Is it really comparable that GST was raised (after promising not too) during a major GFC when the economy was in a dire state (rather than say reducing Working for Families) to Labour in 2017 looking very likely to implement a CGT (without campaigning on it) during a time when the economy is doing very well and in surplus with surpluses projected well into the future on our current tracking? Especially when National evened up the rise in GST with tax cuts elsewhere whilst Labour are not doing so?

chrism56

“The most comprehensive option for base-broadening with respect to the taxation of capital is to introduce a comprehensive capital gains tax (CGT). While some view this as a viable option for base-broadening, most members of the TWG have signiﬁcant concerns over the practical challenges arising from a comprehensive CGT and the potential distortions and other efﬁciency implications that may arise from a partial CGT.
The other approach to base broadening is to identify gaps in the current system where income,in the broadest sense, is being derived and systematically under-taxed (such as returns from residential rental properties) and apply a more targeted approach. The majority of the TWG support detailed consideration of taxing returns from capital invested in residential rental properties on the basis of a deemed notional return calculated using a risk-free rate.
Most members of the TWG support the introduction of a low-rate land tax as a means of funding other tax rate reductions.
The following targeted options for base-broadening should be considered for introduction relatively quickly:Removing the 20% depreciation loading on new plant and equipment. 
Removing tax depreciation on buildings (or certain categories of buildings) if empirical evidence shows that they do not depreciate in value.
Changing the thin capitalisation rules by lowering the safe harbour threshold to 60% or by 
reviewing the base for calculating this measure.
GST should continue to apply broadly. There should be no exemptions.
Most members of the Group consider that increasing the GST rate to 15% would have merit
on efﬁciency grounds because it would result in reducing the taxation bias against saving
and investment. However, any increase in the GST rate would need to be accompanied by
compensation to those on lower incomes. This would signiﬁcantly reduce the net revenue raised from a higher GST”